Should you buy Rio Tinto today?

After yesterday's drop, the shares are looking like even more of a bargain.

a woman

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Yesterday's stock sale has made investors ask: Should I buy Rio Tinto (ASX: RIO)?

Quality shares don't get much cheaper than they are right now. Yesterday Rio fell 3.18% and BHP Billiton Limited (ASX: BHP) wasn't far behind, falling 3.12%. I'm sure many day traders have already taken advantage of the discounted stock price but maybe it's also good for Foolish investors, who look for great stocks at bargain prices.

Last week I announced that if you had bought BHP or Rio at a weekly low and held it for only one week, you could have taken advantage of investor nerves and bought them almost 5% cheaper than usual. Selling shares for less than you purchase them for is a sure way to lose money. Investing can also be made a whole lot easier if you look past short term volatility and buy companies that allow you to sleep at night.

Both Rio and BHP have announced poor results lately, but it wasn't enough to drive investors from the share yesterday, it was something else. With gold dropping 4.2%, spot silver falling 7.2%, and China announcing a GDP growth rate of 7.7%, the market exacerbated the sell off with the combination of poor news and even worse prices. Newcrest Mining Limited (ASX: NCM) was the worst affected, falling 8.24% in one day.

Is it worth it?

It's tempting, at a P/E ratio of around 10, Rio should be a bargain, but long-term investors want some sort of guarantee. Yesterday The Australian reported that rising costs and falling productivity threatened resource projects which have adversely affected Australia's overall economic performance. It doesn't sound good for the mining giant.

Foolish takeaway

Rio has been active in giving investors more, raising the current dividend from 166.7 cents to 188.3 cents and, despite returning a loss, has invested $14.4 billion in its aluminium businesses and projects in Mozambique. The company is slowly being shunned by investors, and together with volatile surpluses of iron ore affecting commodity prices in the near future, perhaps this miner could go cheaper.

However, with stronger balance sheets than some smaller miners like Fortescue Metals Group (ASX: FMG), when the market begins to recover and the "Asian century" begins to ramp up its energy demand, Rio will be well placed to take advantage of the boom. This stock is not one that should be overlooked for long.

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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz does not own shares in any of the mentioned companies.

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